Taxation Law

Get expert solutions for Taxation Law assignments and essays. Find answers to questions on company rules, deductibility of gifts, tax rates, capital gains, Medicare levy, and more.

Running head: TAXATION LAW
Taxation Law
Name of the Student
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Table of Contents
Answer to Question 1.................................................................................................................3
Answer (a)..............................................................................................................................3
Answer (b)..............................................................................................................................3
Answer (c)..............................................................................................................................3
Answer (d)..............................................................................................................................3
Answer (e)..............................................................................................................................3
Answer (f)..............................................................................................................................4
Answer (g)..............................................................................................................................4
Answer (h)..............................................................................................................................4
Answer (i)...............................................................................................................................5
Question to Answer 2.................................................................................................................5
Answer to question 3:.................................................................................................................7
Answer to question 4:...............................................................................................................10
Answer A:............................................................................................................................10
Answer B:.............................................................................................................................11
Answer C:.............................................................................................................................11
Answer D:............................................................................................................................13
Answer to question 5:...............................................................................................................14
Answer A:............................................................................................................................14
Answer B:.............................................................................................................................14

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Answer C:.............................................................................................................................15
Answer D:............................................................................................................................15
Answer E:.............................................................................................................................16
References:...............................................................................................................................17

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Answer to Question 1
Answer (a)
Taxation Ruling TR 2019/1 covers the rules set by the commissioner on company to
pursue its business with a sense of small business enterprises within the section 23 of IT
Rates Act 1986 applicable from the income years 2015-16 and 2016-117. Addition to this, it
reflects section 328-110 of the IT Assessment Act 1997.
Answer (b)
Division 30 of the Income Tax Assessment Act 1997 outlines the legislation regarding
deductibility of gifts or contributions2.
Answer (c)
The top tax rate applicable to a resident taxpayer in the current tax year 2019-2020 is
45%.
Answer (d)
In respect to car and motorcycle. Income Tax Assessment Act 1997 within the Section
118-5 states that, capital gain or loss making on this be disregarded. Further, under division
108 Car or motorcycle is treated as a CGT Asset. If it is an antique, then it comes under
“subsection 108-10(2)” and in respect to use these assets for personal use it comes under
“subsection 108-20(2)”. Any capital gain or loss make on this will be disregarded and hence,
exempted.
Answer (e)
Under the “IT Assessment Act 1997-sec 104.20”, CGT event C1 s104-20 tax comes
into existence when the lost or any destruction happens to the CGT asset that a person owned.
1 Taxation Ruling TR 2019/1
2 Division 30, Income Tax Assessment Act 1997 (Cth)

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The time matters here as it considers the first compensation received for the loss or
destruction or not any compensation received after the loss discovered.
Answer (f)
The current tax-free threshold for a resident individual is $18,200.
Answer (g)
The High Court case, “FCT v Hayes (1956)” reflects a receipt is not considered as an
ordinary income if it is not a result of an employment or service reward. Addition to this
“FCT v Hayes (1956)” says that the gift given tom maintain personal relation will not be
considered as an ordinary income and would not be assessable to the person3. In this case, the
court judgment has given more weightage to the nature of receiving in the person’s hand
rather than the giver’s motive. If the person has personal relationship with the donor than
there is existence of voluntary payment less similar to ordinary income. The gifts received are
to be consider as capital receipt and not an ordinary income.
Answer (h)
Ordinary Income Statutory Income
 The ordinary income earned directly
or indirectly from all sources in the
financial year like salary, income
from rendering services within or
outside Australia.
 It has described as an income other
than the long-term capital gains.
 Statutory income includes all the
amounts of assessable income but
not an ordinary income with rules in
tax law like capital gain, dividends.
 It is combined income of a person
after deductions and exemption
under IT Act.
3 Hayes v FCT (1956) 96 CLR 47

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Answer (i)
Medicare Levy Medicare Levy Surcharge
 It is one of the way for contributing
to the cost of Medicare by the
Australians who are working.
However, there is exemption for low
earning people.
 Taxpayer pays 2% on Medicare levy
as part of their tax on income.
 MLS is a tax of Federal
Government that provide help for
the public health system. It is to
provide to all the citizens not just
those who are able to pay.
 Person whose earning is more than
$90,000 as an individual and more
than $1,80,000 as couple along with
do not have private health insurance
pays 1-1.15% on Medicare Levy
Surcharge
Question to Answer 2
The term ‘usual place of abode’ does not gives meaning alike to the term ‘permanent
place of abode’. Both the term represents its genuine and original meanings. As per the
Oxford dictionary ‘usual’ means Current, customary or ordinary and ‘abode’ means place of
habitation or residence or home.
The ‘usual place of abode’ is a phrase that is a matter of fact; apply on a person when
he/she is physically present within the country. The place of abode signifies that it must not
be fixed but must reflects a content of the residence place. It can be as staying overnight,
traveller’s accommodation for week or month.

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The 183-day test has based on the income year and not the calendar year. It is not
necessary to continuous present in Australia for 183-day test. The days of physical presence
during income year including arrival day and departure will be counted for 183-day test4.
According to “subsection 6 (1) of the ITAA, 1936” a person, not the company who is
staying in Australia and involves a person whose residence is in Australia but the
commissioner has to satisfy with that the person’s permanent place of abode is out of
Australia5. Along with the person who has been in Australia on a regular basis during one-
half income year and commissioner has satisfy with the person’s usual place of abode is not
within Australia and does not intend to make a residence in Australia.
Whether the permanent place of abode is out of Australia is dealt with one of the
leading case “F.C. of T. v. Applegate (79 ATC 4307; (1979) 9 ATR 899)”. The taxpayer who
has his residence in Australia has gone outside for official purpose to open a branch office in
Vila, New Hebrides that has been sent by the employer6. His absence has not a definite
period. He has back to Australia after 2 years. His living has cut short by illness. The
taxpayer claimed his salary that has earned through the Vila has exempted from the
Australian tax under consideration of income from the source of a non-residence. At first, the
Supreme Court of New South Wales and appeal of the federal court of Australia found that
the person was residing and had permanent place of abode out of Australia. Therefore,
judgment has given to him a non-resident in the income year.
Later, the Federal court rejected the demand of commissioner and, made a final
judgment stating that permanent place of abode must be consider as more it appears. It must
4 Barkoczy, Stephen. "Foundations of taxation law 2016." OUP Catalogue (2016).
5 subsection 6 (1) of the Income Tax Assessment Act, 1936
6 “F.C. of T. v. Applegate (79 ATC 4307; (1979) 9 ATR 899)”

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reflects as a place temporary place of abode outside Australia. The court made clear that the
intention to return in Australia does not prevent the taxpayer to pay tax.
According to the case “F.C. of T.v, Jenkins, (1982)”, includes a bank officer who has
transferred in New Hebrides for three years7. However, has returned to Australia due to his ill
health in 18 months. The taxpayer has tried to sold out his home but not found any buyer so,
he has given his home on lease during that period and kept a bank account in Australia. The
Supreme Court of Queensland found with proper evidence that the permanent place of abode
is outside the Australia and does not formed any intention to come back.
Thus, it is clear from the above two cases that a person’s permanent place of abode is
a matter of fact and the circumstances and cannot be think as an established rules.
Answer to question 3:
HECS-HELP $850:
The statutory provision of the self-education expenses stated under “sec 26-20, ITAA
1997” deduction is not allowed to taxpayer for certain kind of study-related payment such as
HELP-HECS8. The payment that is made here for HECS-HELP by the trainee accountant
will not be permitted for deduction under the statutory provision of “sec 26-20, ITAA 1997”.
Travel work to university $110:
A taxpayer is allowed to claim self-education expenses when the payment incurred by
them is for maintaining or enhancing their skills or specified knowledge that is needed by
them in their present activities9. A deduction for the travel is allowed in the either direction
7 .C. of T.v, Jenkins 82 ATC 4098; (1982) 12 ATR 745
8 Barkoczy, Stephen. "Foundations of taxation law 2016." OUP Catalogue (2016).
9 Section 8-1, Income Tax Assessment Act 1997 (Cth)

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incurred between the home and the place of education or the workplace and place of
education. The law court in “FCT v Finn (1961)” 106 CLR 60 allowed the taxpayer with the
deduction for travelling expenses incurred for overseas study because the expenses were
incidental and related to the employment.
The travel expenses incurred for travelling between workplace and university of $110
will be permitted as deduction under “sec 8-1, ITAA 1997” because the self-education
expenses were incurred in maintaining or improving the skills of the taxpayer. Furthermore,
the expenses were incidental and related to the employment10.
Books $200:
An explanation given under the “Taxation Ruling of TR 98/9” regarding states that
the cost of study-related materials such as textbooks, stationaries, calculators are allowed as
deductions. Similarly, in “FCT v Highfield (1982)” ATC 4463 deductions were allowed to
tax payer for the self-education course fees11. The taxpayer noticed that the expenses were
necessarily occurred in getting an advancement of his practice.
The expenses incurred by the trainee accountant here in this context is mainly for self-
education purpose which would contribute to the advancement of his knowledge in the
present employment12. Hence, the expenses will be allowed as deduction under “sec 8-1,
ITAA 1997”.
Childcare expenses for evening classes $80:
10 FCT v Finn (1961) 106 CLR 60
11 Taxation Ruling of TR 98/9
12 FCT v Highfield (1982) ATC 4463

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A loss or the outgoing that are “private or domestic” in type will not be allowed for
deduction provided it fails to meet any of the positive limbs or where it is not allowed for
deduction under the second limb of “s8-1 (2)(b), ITAA 1997”. The court in “Lodge v FCT
(1972)” HCA 49 deduction is denied to the law clerk regarding the childcare expenses for her
child minded while she attends her work. The court ruled the payments were irrelevant in
earning taxpayer’s income.
The childcare expenses occurred for the evening classes of $80 is not allowed for
deduction under the second limb of “s8-1 (2)(b), ITAA 1997”. The payments were irrelevant
in earning taxpayer’s income.
Repair to Fridge at home $250:
A taxpayer is permitted to claim income tax deduction for the payments or expenses
occurred for repairs of the depreciating asset under “sec 25-10, ITAA 1997”. The asset must
be completely used for producing assessable income and no deduction for private purpose is
allowed. The repair to fridge for $250 is a non-deductible under “sec 25-10, ITAA 1997”
because the expenses are private in nature13.
Black trouser and shirt required to be work at office $145:
Payments that are made for purchasing the ordinary clothing items particularly office
suits are not usually held for deduction under “sec 8-1, ITAA 1997”. In “Mansfield v FCT
(1996)” ATC 4001 the law court explained by stating that usually payments occurred for
clothing items of ordinary nature would not be allowed for deduction despite the fact that it is
necessary to dress in the appropriate way14. Likewise, the payments made for black trouser
13 Section 25-10, Income Tax Assessment Act 1997 (Cth).
14 Mansfield v FCT (1996) ATC 4001

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and shirt is not allowed deduction under “sec 8-1, ITAA 1997” because it is an ordinary item
of apparel and not relevant in the derivation of assessable income.
Legal expenses incurred in writing up new employment contract with new employer
$300:
The first positive limb of “sec 8-1, ITAA 1997” clearly explains that the expenses or
payment for getting new employment cannot be viewed as in the course of earning assessable
income15. In “FCT v Maddalena (1971)” ATR 541 the footballer was denied deduction for
expenses occurred in travelling to second club for negotiating the contract of employment.
The payments made at a point too soon.
Similarly, the legal expenses occurred in writing up the new employment contract
with the new employer is non-deductible under first positive limb of “sec 8-1, ITAA 1997”.
The expenses occurred by trainee at a point too soon16.
Answer to question 4:
Answer A:
A CGT event F1 comes about when the contract for the grant of transfer is entered
into by the taxpayer. If the taxpayer extends or renew the lease that they had earlier granted,
then this event takes place17. The taxpayer should denote that no CGT discount is allowed in
this case.
As evident in this case, John grants a long-term lease of seven years to David for a
premium of $7,000. The granting of lease by John resulted in CGT event F1 since the lease
15 Section 8-1, Income Tax Assessment Act 1997 (Cth)
16 Federal Commissioner of Taxation v Maddalena (1971) ATR 541
17 Murray, Ian, et al. "Understanding Taxation Law 2019." (2018).

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was granted to David for a premium and any differences in the capital gains from premium
and expenses will not be allowed for CGT discount in this context to John.
Answer B:
The calculations above show that Deepak makes capital gains from selling the IOOF
shares. However, he also suffered capital loss from the sale of Greencross sales. As the IOOF
shares were not held for a period of 12 months, so no CGT discount will be allowed to
Deepak in this case. While the capital loss can be carried forward to the subsequent years and
can only be allowed for offset against the capital gains made from the sales.
Answer C:
Issues:
Will the taxpayer be allowed to gain full main residence exemption under “sec 118-
110 (1), ITAA 1997”?
Rule:
As per the “sec 118-110 (1), ITAA 1997”, a taxpayer is permitted basic exemption
from the capital gains or loss originating from the CGT event where the CGT asset forms the

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dwelling of the taxpayer all through the entire period of ownership. A taxpayer may not get
the full main residence exemption if they use any portion of the land for business purpose or
for producing assessable income18. To determine the capital gains it is necessary to
understand the market value of the home when it was first used for generating assessable
income.
Application:
The case facts obtained suggest that a house was bought by Li in March 2010 which
she converted it for a physiotherapy business. The property was eventually sold in March
2019 for $700,000. To determine the capital gains the market value of Li’s house has been
taken since it was the first when she house the house for producing assessable income. The
taxable capital gains are computed below;
Capital gain x Percentage of floor area = Assessable portion
= $700,000 – $400,000 = $300,000 (net capital gain)
= 300,000 x 20% = $60,000
Conclusion:
Since Li has held the asset for more than 12 months, she successfully satisfies the 12-
month ownership rule. Therefore, in this case a 50% CGT discount in this case can be
claimed by li.
Answer D:
The differences between the cost base and reduced cost base is given below;
18 Miller, Angharad, and Lynne Oats. Principles of international taxation. Bloomsbury
Publishing, 2016.

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Cost Base Reduced Cost Base
 The cost base of the CGT asset is
commonly comprising of cost or the
price paid for the purchase of asset.
 The cost base of the CGT asset are
also made up of additional cost such
as the acquisition cost, holding cost
and disposal cost of asset19.
 The cost base of CGT asset is
generally made up of five elements.
This includes, money paid for
property, incidental cost of
purchasing the CGT asset, capital
cost for owning the asset, capital
cost to increase the value of asset
and cost of preserving the asset.
 The reduced cost base of the CGT
event takes place to the CGT asset
and the taxpayer has not made any
capital gain20.
 To work out whether the taxpayer
has made any capital loss, the cost
base of the asset is required to work
out the same.
 Similar to reduced cost base the
reduced cost base has same five
elements. However, its third element
mainly deals with balancing
adjustment amount.
Answer to question 5:
Answer A:
The income earned from the illegal means such as drug-dealing, insider trading or
theft are considered as assessable income under ordinary concepts of “section 6-5, ITAA
1997”. An item that holds income character “come-home” to the taxpayer when it is earned
19
20 Schmalbeck, Richard, Lawrence Zelenak, and Sarah B. Lawsky. Federal Income Taxation. Wolters Kluwer Law &
Business, 2015.

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by them. No such existence of illegality or immorality averts its taxation21. In “Lindsay v
IRC (1993)” income is considered taxable irrelevant of its illegality or immorality.
Answer B:
Interest from bank of $500 is included for assessment since it is an assessable periodic
receipt under “section 6-5, ITAA 1997”. A mere windfall gain is not treated as taxable
income. Evidently the winning from crown casino amounting to $10,000 will not be included
for assessment since it is not an income22. While the rent of $2,000 will be included for
assessment since it amounts to ordinary income under the flow concept and taxable ordinary
income within “sec 6-5, ITAA 1997”.
Answer C:
The income from personal exertion under “sec 6, ITAA 1936” involves the receipt
which is associated to performance of contracts or service provisions. This mainly includes
wages, salaries, bonus, allowances etc23. The amount is generally treated as the product of
employment. In “Dean v FCT (1997)” employment remuneration was characterised as
ordinary income because it had adequate nexus with the income generating activity24.
21 Section 6-5, Income Tax Assessment Act 1997 (Cth)
22 Miller, Angharad, and Lynne Oats. Principles of international taxation. Bloomsbury Publishing, 2016.
23 Section 6-5, Income Tax Assessment Act 1997 (Cth)
24 Dean v Federal Commissioner of Taxation (1997)

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Likewise, the sum of $500 received as allowance by the employer will be treated as
assessable ordinary income from personal exertion under “sec6-5, ITAA 1997”.
Answer D:
Answer E:

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References:
Applegate v FCT (1979) ATC 4307
Bankman, Joseph, et al. Federal Income Taxation. Aspen Publishers, 2018.
Barkoczy, Stephen. "Foundations of taxation law 2016." OUP Catalogue (2016).
Dean v Federal Commissioner of Taxation (1997)
Division 30, Income Tax Assessment Act 1997 (Cth)
FCT v Finn (1961) 106 CLR 60
FCT v Highfield (1982) ATC 4463
Federal Commissioner of Taxation v Maddalena (1971) ATR 541
Harding v Federal Commissioner of Taxation (2019) FCAFC 29
Hayes v Federal Commissioner of Taxation (1956) 11 ATD 68
Lodge v Federal Commissioner of Taxation (1972) HCA 49
Maddalena v FCT (1971) 45 ALJR 426
Mansfield v FCT (1996) ATC 4001
Miller, Angharad, and Lynne Oats. Principles of international taxation. Bloomsbury
Publishing, 2016.
Murray, Ian, et al. "Understanding Taxation Law 2019." (2018).
Schmalbeck, Richard, Lawrence Zelenak, and Sarah B. Lawsky. Federal Income Taxation.
Wolters Kluwer Law & Business, 2015.
Section 25-10, Income Tax Assessment Act 1997 (Cth).

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Section 6-5, Income Tax Assessment Act 1997 (Cth)
Section 8-1, Income Tax Assessment Act 1997 (Cth)
Taxation Ruling IT 2650
Taxation Ruling of TR 98/9
Taxation Ruling TR 2019/1